How To Establish Credit - CREDIT REPORT

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TODAY'S SAVING TIP Many people are surprised to discover that the information on your credit reports doesn't actually originate with the credit bureaus at all. In reality, the credit bureaus function more like warehouses: they store data, which is reported to ... Read more

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CREDIT REPORT: How to Establish Credit

Begin by opening individual savings and checking accounts in your name. Over time, your deposits, withdrawals, and transfers will demonstrate that you can handle money responsibly.

Applying for a loan is another option, but beware that this method of establishing credit history will cost, since loans require the payment of interest.

You could take out a bank loan secured by the funds you have on deposit or by items you own, such as a car. You could ask a friend or relative who has good credit to cosign a loan, which means that he or she shares the liability for the loan with you.

You could also apply for department store and gasoline credit cards, which generally are easier to obtain than regular credit cards. Before you apply for any credit, however, make sure you understand the terms. For example, how long is the grace period—the time you have to pay the current balance in full before finance charges are incurred? Is there an annual fee, or other fees, associated with the credit? If you believe that you will carry a balance, you need to know how finance charges are calculated.

Patience is important. It takes time to establish credit, to build a record of consistency in making payments that demonstrates your creditworthiness. And it is much better to go slowly and assemble a strong record than to apply for too many credit cards or a loan that is larger than you can handle.

Start slow, be cautious, keep track of your overall debt, and pay on time. Most important, remember that credit represents real money and has to be repaid with interest. Those are the keys to establishing good credit.